Assessment of methodologies and data used to calculate ...

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1 Pre-print of the article published on Desalination (2017) Assessment of methodologies and data used to calculate desalination costs Michael Papapetrou a,b * , Andrea Cipollina a , Umberto La Commare a , Giorgio Micale a , Guillermo Zaragoza c , George Kosmadakis b,d a Dipartimento di Ingegneria dell’Innovazione Industriale e Digitale, Università degli Studi di Palermo, Viale delle Scienze, Ed.6., 90128 Palermo, Italy. b Wirtschaft und Infrastruktur GmbH & Co Planungs-KG (WIP), Sylvensteinstr. 2, 81369, Munich, Germany c CIEMAT-Plataforma Solar de Almeria, Almeria, Spain d Department of Natural Resources and Agricultural Engineering, Agricultural University of Athens, Iera Odos St. 75, Athens 11855, Greece * E-mail: [email protected] Abstract: In desalination, similarly with other industries, the cost of the final product is one of the most important criteria that define the commercial success of a specific technology. Therefore, when new projects are planned or new technologies are proposed, the analysis of the expected costs attracts a lot of attention and is compared to (perceived) costs of state-of-the-art desalination or costs of alternative fresh water supply options. This comparison only makes sense if the cost assessment methodologies are based on the same principles and use common assumptions. This paper assesses: (i) the methodologies used to calculate the water cost; (ii) the boundary conditions and (iii) the input data and assumptions. It has been found that most papers in the literature use suitable equations and boundary conditions. Also certain elements like land costs are ignored, but in most cases this is duly acknowledged and justified. However, the quality of the input data for the hardware costs, the operating costs, and the financial parameters are not always appropriate. Guidance for the methodology, data and assumptions that should be used is provided depending on the purpose for which the cost of the desalinated water is calculated. Keywords: Desalination costs, energy source, methodology, boundary conditions, input data Please cite this article as: M. Papapetrou, A. Cipollina, U. La Commare, G. Micale,G. Zaragoza, G. Kosmadakis, Assessment of methodologies and data used to calculate desalination costs, Desalination 419 (2017) 8–19, DOI: 10.1016/j.desal.2017.05.038 10.1016/j.desal.2017.02.016

Transcript of Assessment of methodologies and data used to calculate ...

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Pre-print of the article published on

Desalination (2017)

Assessment of methodologies and data used to calculate desalination costs

Michael Papapetroua,b *, Andrea Cipollinaa, Umberto La Commarea, Giorgio Micalea, Guillermo Zaragozac,

George Kosmadakisb,d

aDipartimento di Ingegneria dell’Innovazione Industriale e Digitale, Università degli Studi di Palermo, Viale delle Scienze, Ed.6.,

90128 Palermo, Italy.

bWirtschaft und Infrastruktur GmbH & Co Planungs-KG (WIP), Sylvensteinstr. 2, 81369, Munich, Germany

cCIEMAT-Plataforma Solar de Almeria, Almeria, Spain

d Department of Natural Resources and Agricultural Engineering, Agricultural University of Athens, Iera Odos St. 75, Athens

11855, Greece

*E-mail: [email protected]

Abstract:

In desalination, similarly with other industries, the cost of the final product is one of the most important

criteria that define the commercial success of a specific technology. Therefore, when new projects are

planned or new technologies are proposed, the analysis of the expected costs attracts a lot of attention

and is compared to (perceived) costs of state-of-the-art desalination or costs of alternative fresh water

supply options. This comparison only makes sense if the cost assessment methodologies are based on

the same principles and use common assumptions. This paper assesses: (i) the methodologies used to

calculate the water cost; (ii) the boundary conditions and (iii) the input data and assumptions. It has

been found that most papers in the literature use suitable equations and boundary conditions. Also

certain elements like land costs are ignored, but in most cases this is duly acknowledged and justified.

However, the quality of the input data for the hardware costs, the operating costs, and the financial

parameters are not always appropriate. Guidance for the methodology, data and assumptions that

should be used is provided depending on the purpose for which the cost of the desalinated water is

calculated.

Keywords: Desalination costs, energy source, methodology, boundary conditions, input data

Please cite this article as: M. Papapetrou, A. Cipollina, U. La Commare, G. Micale,G. Zaragoza, G.

Kosmadakis, Assessment of methodologies and data used to calculate desalination costs, Desalination

419 (2017) 8–19, DOI: 10.1016/j.desal.2017.05.038

10.1016/j.desal.2017.02.016

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1. Introduction

The combined effects of global population growth, industrialisation and urbanisation drive an increasing

demand for water. UNEP predicts that by 2025 more than 2.8 billion people in 48 countries will face

water stress or scarcity conditions [1]. In many regions of the world, desalination is one of the strategies

adopted in order to deal with this issue. As a result the relevant market is growing rapidly. The global

desalination capacity in 1980 was about 5 million m3/year [2] increasing to about 90 million m3/year by

2016 [3]. Between 2005 and 2015 alone the desalination capacity in the world has more than doubled

and this trend continues [3].

The preferred type of desalination process and the sources of energy used change over time depending

on technological developments, which affect both the performance and the cost of the desalination and

energy generation technologies. In addition, the technological preferences are greatly affected by the

local conditions in the regions where the plants are installed because parameters such as the cost of fuel

and the typical feed water composition can vary widely, affecting the performance and feasibility of the

plant.

In most countries water supply is the responsibility of municipalities, or some other kind of

governmental agencies. Therefore, these agencies and the companies that are supporting them in the

process face the following choices:

Shall they employ desalination, or is there a better alternative for securing the necessary

resources for their water supply needs?

If desalination is employed, which is the most suitable technology for their specific conditions?

Which source(s) of energy should be used to power the inherently energy intensive desalination

process?

The issue of cost is central in dealing with these questions. Of course other parameters are also taken

into account in the decision process, such as environmental impacts, social acceptance and strategic

choices defined by governmental policies. But in any case, no decision can be taken without full clarity

on the economics of each choice.

The importance of the desalination costs is reflected on the large amount of relevant scientific papers

and reports that deal directly with this issue. It has been widely acknowledged [4–7] that the different

methodologies, definitions and data sources used to calculate desalination costs make difficult objective

comparisons between technologies and between different projects. There have been efforts in

developing a global picture about this issue and streamlining the approaches followed by the

desalination community. Most notably, in December 2004 MEDRC started a process aiming to develop a

global standard for desalination cost calculations. The first step was a dedicated conference in Larnaca,

Cyprus, where invited papers by leading experts were presented on issues like: (i) Desalination

technology costs [8–14], (ii) Cost models [15–21], (iii) Boundary conditions [22–26], and (iv) Case studies

[27–34]. The idea was that the conference would be followed by a “book that will be useful to decision

makers, planners and the industry” and “ultimately develop a dynamic standard that is globally

accepted”[4]. However, these follow-up actions were never organised and no other dedicated action or

event has taken place since.

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This paper aims to pick-up on this process and contribute to the development of increased

understanding a common practices within the desalination community. Over 100 publications from the

past 20 years (1996 – 2016) have been critically reviewed, focusing mainly on the methodologies, the

assumptions and input data that they use, rather than the actual results of desalinated water cost in

USD/m3. Then the strengths and weaknesses of each approach are discussed, coming up with

suggestions for desalinated water cost calculations that are reliable, defining the extent to which they

can be used for different decision making processes or other purposes.

2. Literature on desalination cost reviews and correlations

2.1 Cost reviews

There are several studies that have reviewed published desalination costs. In 2008 Karagiannis et al. [35]

reviewed almost 100 different cases and classified the reported costs into categories according to the

type of feed water (i.e. seawater, brackish etc.), the desalination process adopted (i.e RO, MED, MSF)

and the type of energy source (heat, renewable electricity or grid electricity). In 2014, Shatat et el. [36]

also screened desalination costs from various sources and grouped them in tables classified by

technology and energy source. The cost data come mostly from the previously mentioned work of

Karagiannis and from few other published papers with original cost calculations. In 2013, Al-Karaghouli

et al. [37] did a similar work, where cost data from 23 publications were used to develop a table

providing cost ranges for all major desalination technologies powered by conventional sources and

another 29 papers were used to compile a similar table with the costs of desalination powered by

renewable energy. Also Ziolkowska in 2015 [38] presented an analysis where over 50 papers, reports

and databases have been used and the costs reported have been discussed, providing also a cost

breakdown to operating, maintenance and capital cost. All these papers [35–38] classify costs based on

technology and energy source and sometimes plant size; however the grouping of the costs in all these

papers does not take into account critical factors, such as:

(i) The different year of construction. For example, Al-Karaghouli et al. in his paper in 2013 [37]

derived a cost range for PV-RO from 11.7 to 15.6 USD/m3 by grouping together costs taken

from papers published from 1991 [39,40] up to 2009 [41].

(ii) The different geographical locations. For example Karagiannis et al. [35] gave a cost range

from 0.48 to 1.62 USD/m3 for RO systems with capacities from 15,000 to 60,000 m3/day,

grouping together data from countries with very different conditions such as USA, China,

Greece and UAE.

(iii) The assumptions/methodologies used to derive these costs. For example Ziolkowska [38]

grouped together costs reported in the Global Water Intelligence (GWI) database from real

desalination plant EPC contracts, cost assessments from the literature and results she

derived from applying the DEEP 5 model developed by the International Atomic Energy

Agency.

By grouping together information without accounting for these three factors the conclusions can be

misleading. As will be shown in Section 2.2, it has been proven that the year of construction and the

geographical location are two of the most important factors affecting the cost. For example, a decision

maker that reads in a 2013 paper [37] that the cost of water produced by a PV-RO system ranges from

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11.7 to 15.6 USD/m3 may very well decide against considering that technology as it seems very

expensive. However, within the 22 year period from 1991 (from when some of the data are derived) to

2013 (when the paper is published) the cost of PV has actually reduced by 90% [42–46].

2.2 Cost correlations

Some papers develop cost correlations (i.e. regression equations as a function of main parameters),

based on desalination project cost databases. One of the important works in this category was

presented in 2014 by Loutatidou et al. [47]. They performed statistical analysis of real cost data from

950 RO plants and showed that the most important parameters affecting the cost were:

the plant capacity,

the year of construction,

the feed water salinity,

the region where the plants are installed

In addition, this paper [47] derived an equation that can be used to assess the EPC costs of SWRO and

BWRO plants installed in the GCC or Southern Europe, a useful tool for decision makers that need an

initial estimation of the costs they should be expecting.

Also Wittholz et al. [48] published in 2008 a paper where a series of cost correlations were developed

for order of magnitude cost estimations. Their initial database included over 500 plants and the focus

was on large scale MSF and MED plants both for seawater and for brackish water. Finally, Lamei et al.

[49] also attempted to develop a cost correlation for forecasting PV-RO prices. However, their paper was

based on a database of only 21 plants of very different sizes, feed-water qualities and energy supply

arrangements, making it difficult to come-up with a reliable correlation.

2.3 Factors affecting costs

The factors affecting the water cost have been discussed in some papers. One such paper was published

in 2013 by Ghaffour et al. [6] and was based on an extensive review of the literature; it can be used as a

check-list when analysing the economics of desalination plants. Then, in 2015 Ghaffour et al. [2]

discussed the potential of renewable energy driven desalination technologies, including a discussion on

their costs. It is an exhaustive paper, built on 210 references.

There are more review papers on desalination technologies, which also touch on the issue of costs. For

example Reif et al. [50] and Bundschuh et al. [51] both in 2015 reviewed renewable energy

combinations with thermal desalination, however the former did not go into specific costs while the

latter grouped together costs from several sources ending up with very wide ranges that cannot be used

for decisions or clear conclusions.

3. Methodologies for calculating desalination costs

3.1 Investment evaluation indicators

Desalination plants involve several kinds of costs and revenues over a long period of time during the

planning, construction, operation and decommissioning phases, which results in complicated cash flows.

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There are well established methodologies applied in any kind of industry to compare different projects

involving cash flows over several years. The most commonly applied indicators used in the evaluation of

investments are the Net Present Value (NPV), the Internal Rate of Return (IRR) and the (Discounted)

Payback Period (PBP). There are many textbooks and papers where these indicators are defined,

providing equations for their calculation (see for example Levy et al. [52]).

The calculation of the NPV can be done using the following equation:

𝑁𝑃𝑉 = ∑𝑅𝑡 − 𝐶𝑡

(1 + 𝑖)𝑡

𝑛

𝑡=1

− 𝐼0 (1)

The calculation of NPV requires the knowledge of the initial capital investment (I0), the revenues and

costs in year t (Rt, and Ct respectively) for all years from the first to the last (n). In addition, it is needed to

select an appropriate discount rate (i), which reflects the expected return by the investor and depends

on macro-economic assessments. The selection of the discount rate can be difficult as it is affected by

non-technological elements that can vary widely among industries, countries and over time. Especially

for theoretical cost calculations, as is often the case in the scientific literature, its selection can be quite

random. In that respect the IRR can be a more interesting indicator as it solves Eq. (1) to calculate the

required discount rate (i) for the project to break even (NPV=0) by the end of its technical/accounting

lifetime and therefore the calculation of the IRR does not require the selection of a discount rate; it

rather calculates the return on investment that can be expected from a specific project.

In the case of desalination projects the Rt reflects the revenues from selling the produced water; as a

result the calculation of NPV or IRR requires the assessment of the amount of water that will be

produced and the price at which the water can be sold at the point of production from year 1 to year n.

For example the Rt can be calculated easily in the case of a contractor who develops and operates a

project on behalf of a client like a municipality, which as part of the agreement has offered a guarantee

that it will purchase all produced water at a well-defined price over a certain period of time. However,

for theoretical cost calculations the selection of a water selling price and its evolution over time can be

difficult as it depends on volatile market framework conditions over a period of 20 to 30 years.

The situation is similar in energy projects, where the price at which the generated electricity can be sold

has to be known. In that case the concept of Levelised Cost of Electricity (LCOE) has been introduced,

which is an assessment of the price at which the electricity would have to be sold for the project to

break even and is calculated by dividing the discounted costs over the lifetime of the project by the

discounted energy produced over the same period. By adapting that concept for desalination and other

water production technologies, Eq. (2) is obtained for the Levelised Cost of Water (LCOW), where Ct is

the annual cost of operation and Mw, t is the amount of water produced in year t:

𝐿𝐶𝑂𝑊 =𝐼0 + ∑

𝐶𝑡

(1 + 𝑖)𝑡𝑛𝑡=1

∑𝑀𝑤,𝑡

(1 + 𝑖)𝑡 𝑛𝑡=1

(2)

By calculating the LCOW it is easier to compare the relative feasibility of different technologies, plant

layouts, sizes, etc.

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3.2 Review of methodologies used to calculate desalination costs

In the literature, there are only few papers using the LCOW [53–57] or the NPV/IRR [58,59]

methodologies described in section 3.1.

In most of the cases [60–71] a method that some authors call “amortisation factor” or “annualised life

cycle cost method” was used. In that approach, the initial capital costs were annualised by using the

amortisation factor (α). The result obtained from this method is called here Simplified Cost of Water

(SCOW), which can be calculated using Eq. (3):

𝑆𝐶𝑂𝑊 =(𝐼0 × 𝛼 ) + 𝐶

𝑀𝑤 (3)

, where the amortisation factor (α) is defined by Eq. (4):

𝛼 = 𝑖 (1 + 𝑖)𝑛

(1 + 𝑖)𝑛 − 1 (4)

The SCOW approach that was adopted in most of the reviewed papers is essentially a simplified version

of the LCOW as can be seen in Eq. (3), where it is assumed that every year (from year 1 to year n) the

desalination plant produces exactly the same amount of water (Mw) and has exactly the same running

costs (C). It is reasonable that most papers adopted that approach, since in theoretical calculations it is

standard practice not to go into too much detail and to assume stable operation over the system’s

technical life due to lack of actual data.

It is possible to elaborate further the assumptions within the SCOW approach. First of all, it is quite

common to break down the running costs to annual fixed costs (CF) measured in USD and variable costs

(CV) measured in USD/m3. Then, in some cases [72], the expected variation of prices over time was taken

into account by assuming an annual escalation rate (r) for running costs. In that case Eq. (3) becomes

more complicated by introducing a multiplier (λ) for taking into account the price escalation over time,

as observed in Eq. (5):

𝑆𝐶𝑂𝑊 =(𝐼0 × 𝛼 ) + 𝜆 × 𝐶𝐹

𝑀𝑤+ 𝜆 × 𝐶𝑣

(5)

The multiplier (λ) is defined as by Eq. (6) and parameter k is given by Eq. (7).

𝜆 =𝑘(1 − 𝑘𝑛)

1 − 𝑘× 𝛼 (6)

𝑘 =1 + 𝑟

1 + 𝑖 (7)

Different multipliers can be introduced to account for different expected escalation rates of various cost

or revenue elements. The LCOE methodology is still more flexible allowing for (non-linear) future

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variations in costs, prices and production rates. However, the elaborate versions of the SCOW and the

LCOW give practically the same results in most of the cases where simple enough scenarios are

considered.

On the other hand, in some papers [7,73,74] a very simplistic calculation was performed for the cost of

water (COW) where no discounting of future cash flows was taken into account. This simplified

calculation is given by Eq. (8):

𝐶𝑂𝑊 =(𝐼0/𝑛 ) + 𝐶

𝑀𝑤 (8)

There are papers where the water cost was calculated but the methodology used was not clearly

defined [75–78], while in several others [79–84] the methodology used was also not explained but

reference was made to software packages used, which in most cases have built-in a methodology similar

to the LCOW or at least the SCOW.

4. Assumptions and estimations of input data

As discussed in section 3, the methodology used can affect the calculated cost of water, as there are

differences depending on whether the following parameters are considered: the value of money over

time and the variations of the system’s performance, costs and revenues over its technical lifetime.

However, even if a correct and detailed equation is used to calculate the costs, the quality and detail of

the input data and the accuracy of the assumptions about future performance, costs and revenues will

be the main elements that define how relevant or reliable the results are. These assumptions and

estimations are discussed in this section.

4.1 Boundary Conditions

As a starting point, the boundaries for the cost calculation have to be defined; depending on the

purpose of the calculation and the specific conditions in every site, it might make sense to take into

account the auxiliary equipment and materials under the capital cost and their running requirements

under operating costs. Items that can be either included or excluded are: water storage, desalinated

water distribution, laboratory for quality control, electricity grid extension, access roads opening and

desalination plant decommissioning at the end-of-life.

For example Shahabi et al. in 2015 [56], when comparing alternative desalination options for the Perth

water supply in terms of RO plants alternative sizes and siting options, included in the calculation the

investment and running costs of the infrastructure for the water distribution to the end-users,

concluding that one of the decentralised scenarios provided water that costs 18% less than in the

centralised scenario. If the distribution costs were ignored, the centralised scenario would appear to

cost 40% less than the selected decentralised scenario, leading to a totally different conclusion. This

example reflects the importance of defining properly the boundary conditions.

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4.2 Capital Costs (I0)

4.2.1 Hardware costs

All examined papers take into account the equipment and material costs in their calculation. Most

papers used a fixed figure as specific capital cost (usually in USD/m3/day) for the desalination

technology, including standard pre-treatment and post-treatment equipment and materials. The specific

capital cost figures reported, are most of the times reproduced from one paper to the other without

taking into account critical factors which can affect that cost substantially as discussed in section 3.2, like

year of construction, scale and location.

For an accurate definition of the capital costs, a breakdown of all equipment and materials is necessary.

In order to do that, the plant design has to be known, which depends on choices made by the customer

(for example the type of energy recovery equipment used) and site specific characteristics, like

topography (affecting feed-water intake), feed water quality (affecting pre-treatment), the quality

standards that the desalinated water has to comply with (affecting post-treatment) and regulations

(affecting brine disposal). In addition to the desalination related equipment and materials, also any

integrated auxiliary equipment and energy generation hardware costs have to be taken into account.

It has to be noted that many papers [7,53,60,64,65,70–72,75,77,78,83] included only the hardware in

their capital costs and did not explicitly mention or take into account any of the other capital cost

factors listed in section 4.2.2 below.

4.2.2 Other capital costs

Engineering, Construction and Project Management: Many of the reviewed cost assessments ignored

the engineering, construction (site preparation, civil, electromechanical) and project management costs.

It is common though to account for those by adding a percentage on top of the equipment hardware

costs. Some examples are provided in table 1.

Table 1: Overview of Engineering, Construction and Project Management Costs used in desalination cost

analysis literature

Year of

publication Engineering, Construction and Project Management Costs Reference

1996 site preparation and utility costs at 10% of equipment and indirect

costs charged at 27% of direct capital costs

[85]

2001 Foundations and buildings 15% on top of capital costs for

equipment, engineering and contingency at 10% of equipment and

capital

[80]

2011 Installation cost 25% of equipment cost [62]

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2011 Installation & infrastructure 30% of system capital costs,

Professional costs 5% of system capital costs

[63]

2012 Engineering 3.5% of the project costs, Project development 0.5% of

project expenses

[74]

2015 Site preparation 20% of equipment cost, all other indirect costs

charged at 30% of direct costs

[67]

Initial Design and Permitting: None of the desalination cost assessment papers reviewed did explicitly

account for the costs of the initial design and the costs of the process required to go through for

securing all necessary permits. However, it has been widely acknowledged (see Ref. [47,86]) that the

potential environmental impacts of desalination are increasingly recognised and lead to higher costs, for

permitting but also in other capital and operating expenditures, especially in the European Union, the

United States and Australia.

Cost of land: Most cost calculations ignore the cost of land. However, Lapuente in 2012 [74] in his effort

to calculate “fully and accurately desalination costs” did account for land costs, and where data were

not available he assumed 2% of the construction costs for land acquisition. Also, Shahabi et al. in their

2015 paper [56] accounted for the cost of land, using the figure of 300 AUS$/m2, while Kosmadakis et al.

[87] considered an annual cost of 3000 EUR/ha for their small-sale solar-ORC-RO system. Finally, papers

that performed an assessment of desalination costs based on real plant data might have taken some

kind of land costs into account, depending on the kind of data available in the sources used, which is not

always clear; for example Wittholz et al. in [48] mentioned: “Important details such as if the land and

civil works were included in the capital cost were not always reported, making it difficult to develop

accurate predictions of cost.” If there is a leasing agreement for the land rather than land acquisition,

the annual fee paid should be included under the operating costs rather than the capital costs.

4.3 Operating Costs (Ct)

4.3.1 Energy

One of the main contributors to the cost of desalinated water is energy, and in most cases it is

considered as an operating cost. There are some cases though, where energy contributes mainly

through capital costs when the desalination plant includes an integrated or co-located electricity

generation system. For calculating the energy related cost for year t (CE,t) Eq. (9) can be used:

𝐶𝐸,𝑡 = 𝐸𝑒𝑙,𝑡 × 𝑃𝑒𝑙,𝑡 + 𝐸𝑡ℎ,𝑡 × 𝑃𝑡ℎ,𝑡 (9)

Where Eel,t and Eth,t the amount of electrical and thermal energy respectively used by the plant in year t

and Pel,t and Pth,t the cost of the unit of electrical and thermal energy respectively in year t.

The energy requirements (Eel and Eth) are the product of the specific energy consumption (in kWh/m3) with the water production Mw (in m3). The specific energy consumption is determined by the desalination technology used and the design characteristics of each specific plant. The ambient conditions do also affect the specific energy consumption; for example the feed water composition and

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temperature affect the plant performance [88]. Some authors performed detailed calculations to determine the specific energy consumption (see Ref. [63,64] for RO and [69] for MED) while others just took a reference figure from the literature (see Ref. [54,62] for RO and [65] for MED).

The way to account for the cost of energy (Pel and Pth) depends on whether it is generated on-site or

provided externally (for example electricity from the grid). For on-site generation, if the energy and

desalination plants are operated by the same entity, the initial costs related to energy generation (for

equipment, engineering etc.), must be taken into account as part of the capital costs, leaving only the

associated running costs (like fuel , maintenance and personnel costs) to be used in Eq. (9). An

alternative approach to that is to calculate separately the Levelised Cost of Energy (LCOE) and to use

that as the cost of the unit of electricity [57]. If the energy plant is on-site but operated by a separate

legal entity, which financed its development and sells the energy to the desalination plant, the

calculation is similar to the case where externally provided energy is used, where the cost of the unit of

energy is defined in the agreement between the desalination plant operator and the energy supplier.

Electricity:

The vast majority of the papers reviewed used a fixed rate for electricity over the whole lifetime of the

desalination plant: most were in the 0.05 to 0.06 USD/kWh range [49,61,73,74,85,86,89], with few being

at 0.03 USD/kWh [72,80] or below [83] and some at 0.08 USD/kWh [68,71] or above (as high as 0.11

USD/kWh) [65,75]. In two cases the authors performed a sensitivity analysis on the electricity costs

ranging from very low to very high prices [67,79].

In all these papers though, the selected electricity price was kept stable for the whole lifetime of the

desalination system. In reality the price of electricity can vary significantly over these 20 to 30 year

periods. Only Kaldelis in 2004 [54] introduced an annual increase rate of 4%; he started by assuming

electricity costs of 0.04 USD/kWh for 2004 and it increased gradually reaching 0.06 USD/kWh by 2014

and 0.09 USD/kWh by 2024. Looking back to this assumption now, in 2016, it seems to be much closer

to reality compared to fixing the electricity price at 0.04 USD/kWh for 20 years, which is the approach

that most authors followed. Especially in the case where a large desalination plant procures directly

from the wholesale electricity market, rather than from a supplier, it will face much stronger variations,

not only over the years, but also seasonally, daily and even hourly [90,91].

In addition to that, the industrial electricity prices vary strongly between the countries and the regions

of the world. Figure 1 illustrates the industrial electricity prices in some Southern European countries

from 2011 to 2015. It clearly shows that even between countries in the same region the differences can

be very large. For example, industries pay for electricity in Italy more than double than what they pay in

Bulgaria. Figure 1 also clearly demonstrates that in Southern Europe industrial electricity costs are

higher compared to the 0.05 – 0.06 USD/kWh figure used in most papers. Also within a period of a few

years the industrial electricity prices can vary significantly and this variation can be in the form of prices

increases or price reductions; for example in Cyprus, a country with high desalination needs, industrial

electricity prices were reduced by 39% from 2012 to 2015.

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Figure 1: Industrial electricity prices in EUR/kWh in Southern Europe excluding VAT and other recoverable

taxes and levies (Band IC : 500 MWh < Consumption < 2 000 MWh). Source: [92]

Thermal energy:

In most cases, thermal energy/steam is generated on-site, either directly for the desalination plant or

within a co-generation installation where a power plant and a desalination plant are co-located [93–97].

Usually natural gas or oil is used to generate the heat (and electricity where applicable), but there are

several other options possible like solar thermal, concentrated solar, geothermal and nuclear [98–102].

One way to take these costs into account is to include the procurement and installation of the energy

generating equipment as part of the capital costs, while the fuel procurement (if any) and other running

costs of the energy generation under the operating costs of the desalination system (see Ref. [60]). If

electricity is also generated the revenues from selling it to the grid should also be taken into account

(see Ref. [84]).

A simpler way to deal with this is to consider the desalination as a separate process and to define a price

for the unit of heat/steam that is provided to drive the thermal desalination system. See for example

Kesieme who put a price of 0.007 USD/kg for steam [65], using as a reference the paper of Al-Obaidani

[97], who also used this value but did not explain where it came from. On the other hand, Agashichev

[53] also attached a cost to the heat, but had a more sophisticated approach, starting from the capital

and operating costs of an auxiliary boiler and calculating from that the levelised cost of heat.

In cases where the heat is produced on-site together with electricity, a decision has to be made for the

allocation of capital and operating costs between the electricity and the heat. There are two

approaches:

0.00

0.05

0.10

0.15

0.20

0.25

2011 2012 2013 2014 2015

12

(a) The exergetic cost accounting method, where the costs are allocated between heat and electricity

proportional to the exergy embedded to the corresponding streams entering or leaving any plant

component- this is used for example by Agashichev [53].

(b) The reference cycle method as explained by Sommariva in chapter 6.1.5 of [103] where “the energy

associated to the steam extracted to the desalination plant is considered in terms of equivalent loss of

electric power that would otherwise be rendered by the steam extracted in the power generation yard” –

this method is applied for example by Moser [55].

The two methods were compared in a 1999 paper by El-Nashar [104], where he concluded that the

exergy method is preferable. However, both methods are still used and are widely accepted.

An interesting option is the use of “waste heat”. This option is often discussed, especially as reverse

osmosis has taken over the bulk of the mainstream desalination market and there is a search for niche

markets where thermal desalination might have a competitive advantage. For example Rahimi [58]

studied different MED plant configurations, assuming low grade sensible heat sources that are available

for free. Also Ghaffour [2] and Bundschuh [51] discussed various thermal desalination options in

combination with low-cost energy supply, with particular emphasis on low-cost, low enthalpy

geothermal sources.

4.3.2 Other operating costs

Chemicals and other consumables:

The requirements for chemicals depend on the type of desalination plant and on the feed water quality.

Many of the reviewed papers take the consumables into account using reasonable assumptions for the

specific costs (USD/ m3). A standard reference for the cost of chemicals is the 2002 paper by Ettouney et

al. [61] where they included tables with a breakdown of the chemicals and their specific costs for

different technologies and scales; these values ranged from 0.024 to 0.35 USD/ m3. Similar figures,

closer to the lower end of this range were used in most of the papers reviewed where the costs of

chemicals were explicitly taken into account, as indicated in Table 2.

Table 2: Overview of Chemical Costs used in desalination cost analysis literature

Year of

publication Chemicals costs Reference

2001 0.024 USD/ m3 for MED and MSF and 0.047 USD/ m3 for RO [80]

2002 0.024 to 0.35 USD/ m3 [61]

2003 0.025 to 0.035 USD/ m3 [76]

2005 0.035 USD/ m3 [105]

13

2012 0.024 €/m3 for upwelling water uptakes and 0.042€/ m3 for seawater

intakes

[74]

2013 0.019 to 0.05 USD/m3 [65]

2015 0.0421 USD/m3 [58]

Labour:

The labour costs can vary widely depending on the country, the exact location, the technology and the

specific design and the scale of the plant. Table 3 takes the specific costs used in some of the reviewed

papers to give a taste of the values used.

Table 3: Overview of specific costs for labour used in desalination cost analysis literature

Year of

publication Specific costs for labour Reference

2002 0.1 USD/m3 for the thermal processes and 0.05 USD/m3 for RO [61]

2003 0.1 USD/m3 [76]

2012 Ranging from 0.007€/m3 to 0.030€/m3 reflecting the economies of scale [74]

2013 0.03 USD/m3 for MD and MED and 0.02 USD/m3 for RO [65]

2014 0.027 €/m3 [55]

2016 0.08 to 0.1 USD/m3, depending on the RO size [106]

Maintenance:

One of the major maintenance costs for RO is the membrane replacement. The membrane cost per m2 is

varying over time and depends also on other factors like region and economies of scale; finding current

prices from suppliers should not be a problem. The most important for the cost calculation is a

reasonable assumption for the membranes replacement rate, which depends among others on the feed

water quality. Ettouney in [61] mentioned that the membrane replacement rate varies between 5 and

20%. This is confirmed in the literature where most papers used the 20% rate (see Ref. [62], [63], [65],

[67], [80] and [107]) or the 10% value (see Ref. [76] and [71]). In one case [63] where PV was considered

as the source of energy, 40% was used to account for the negative effect that varying pressure might

have on the membranes.

Regarding other maintenance costs, like replacement of parts, pumps etc, they are often ignored, or

they are accounted for by adding annually to the costs a certain percentage of the capital costs, ranging

between 1.5 and 3%. Some examples are provided in the Table 4.

14

Table 4: Overview of other maintenance costs used in desalination cost analysis literature

Year of

publication Other maintenance costs Reference

2002 less than 2% of capital cost per year for other maintenance and spare

parts

[61]

2013 maintenance cost 2% of the normalised capital cost [65]

2014 maintenance and repair 3 to 3.3% of capital costs for MED and 2.7% for

RO

[55]

2015 maintenance, spares and insurance 1.5% of capital costs [58]

2016 4% of the capital cost to account for all operating costs [108]

Brine Disposal and other externalities:

As mentioned in section 5.2.2, the brine disposal is increasingly becoming an issue that attracts more

attention. In addition to the permitting and infrastructure costs associated with it, also operating costs

have to be allowed for. Most of the reviewed papers did not take that into account. In 2013, Kesieme

quoted 0.0015 USD/m3 for brine disposal from MD and MED [65]. However, the reference he used for

that figure was [97]. This paper actually used the value of 0.015 USD/m3 for MD, which is one order of

magnitude higher. Regarding RO brine disposal, Kesieme [65] quoted 0.04 USD/m3. The various options

for dealing with the problem and their cost implications were also analysed in 2004 by Mickley [23]. On

the other hand, there is a growing trend exploring the option of recovering valuable minerals [109–114]

or energy [115–118] from the brine. This way the brine disposal can pay for itself or even generate

additional income.

Regarding other externalities, there are some papers that introduce the price of carbon in the overall

cost calculation, ranging from 19 USD/tonne [82] to 23 USD/tonne [65]. In the paper of Nisan [82], the

carbon tax was termed as an environmental externality and was obviously introduced in an effort to

highlight the advantage of nuclear against coal for powering desalination. However, other externalities

like the nuclear waste disposal were ignored.

In the paper of Moser in 2013 [84] a different type of externality was included for the first time – the

variability of PV or wind and the impact that this has on the power system was taken into account in the

cost calculations. It is a topic that attracts attention lately, but the way that this should be taken into

account in cost calculations is not obvious and is a matter of debate also in papers that study the

electricity market issues (see Ref. [43,119]).

Others:

In most cases the tax and legal costs were not explicitly mentioned. Insurance costs fall also under that

category, however some recent papers have started taking insurance explicitly into account (see Ref.

[69] and [58]). In some cases this kind of costs might not be explicitly mentioned, but was included

15

under overhead/indirect costs (see [67,85]). However, very few of the reviewed papers did include

overhead costs in their calculation.

4.4 Water production (Mw,t)

The annual water production (Mw,t) is usually calculated simply as the product of the plant capacity with

the plant availability. The plant availability is estimated after taking into account the planned

maintenance and unplanned downtime. There are papers, which ignored availability and just used the

plant capacity for the water production figure (see Ref. [62]). However, most papers did take into

account a reasonable rate between 85 and 95% for availability in conventional systems, or around 25%

for systems that use PV solar energy and do not have any back-up or energy storage. It has also been

pointed out that availability can be affected by interruption because of failure of auxiliary equipment

and therefore proper specifications are important also for such items that have small contribution to the

capital costs but could affect economics by causing reduction of the availability [120]. Table 5 provides

an overview of some availability rates used in the literature.

Table 5: Overview of availability rates used in desalination cost analysis literature

Availability Reference

0.96 [69]

0.95 [58,74]

0.9 [48,61,63,65,67,68,72,80,121]

0.85 [85]

0.83 (operating 20 hours a day) [64]

0.8 [59]

0.27, 0.54 and 0.82 considered [54]

Sensitivity, starting from 0.5 and increasing up to 0.85 [56]

0.33 (PV powered) [89]

0.25 (PV powered) [49,77]

All papers assumed that water is produced at full capacity when the plant is technically available to do

so. In most cases this is a reasonable assumption. However, as shown by Kaldellis in 2004 [54], seasonal

variations in demand have to be taken also into account where relevant. For example, in the case of the

touristic Greek islands that Kaldellis studied, the demand for water can be very different between the

summer and the winter periods and in some cases the desalination plants might not operate at full

16

capacity in the winter [122]. As Kaldellis et al. showed [54], this is an important consideration, as it can

increase the water costs by as much as 50% when taken into account.

4.5 Financial variables and plant lifetime

Discount rate (i)

As discussed in section 4, cost assessment methods require the use of a discount rate to account for the

value of money over time and the risk or uncertainty of future cash flows. However, no single paper was

found which had a discussion on how the discount rate was selected. In fact, the vast majority of the

desalination cost papers just picked a value, usually between 6.5 and 10%. This is a very narrow range

given that the papers reviewed cover two decades and a very wide range of projects with different

technologies, locations and scales. Some of the papers [79,81,82,123] included the discount rate as one

of the variables for which a sensitivity analysis was performed. However, there was still no discussion on

the factors that could affect the discount rate.

In reality, the discount rate can vary widely depending on various parameters. For example in the

DiaCore project [124] it was shown that even during one single year (2014) for one mature technology

(on-shore wind) and within the same region (Europe) the weighted average cost of capital varies

significantly between the countries, from 3.5% for Germany to 12% for Greece, with the other countries

being in between (7% for the UK, 8% for Italy, 9% for Poland, 10% for Spain etc).

For defining the discount rate the following three main issues have to be determined on a project-per-

project basis:

• Loan to equity ratio

• Loan interest rate and duration

• Investor expectations for return on capital.

These parameters will be affected by the risk and the general economic situation, which defines inflation

and alternative opportunities for the capital. The risk has several elements to it: On the one hand it has

to do with the technology; in general new technologies (like emerging desalination methods) are not

proven and are perceived as riskier. Then there are the general risks that have to do with the project,

like risk associated with the revenues expected from selling the water, unforeseen changes in the

running costs (for example big changes in the cost of energy), changes in the rules associated with

product water quality or brine disposal etc. On the other hand there are the risks associated with the

location and the country, like currency risk. In the calculation of desalination costs these items have to

be taken into account when defining the discount rate.

Plant lifetime (t)

All methodologies seen in section 3 for evaluating the feasibility of desalination projects require the

definition of the plant lifetime (t), i.e the number of years for which the future cash flows will be taken

into account. Normally this is defined by the decision makers, who have to fix the period of time over

which they want to calculate the return on their investment, respecting the technical constraints of the

plant and its components. The residual value of the plant at the end of this period has to be taken into

account.

17

If the calculation is not done to determine a “return on investment” but the purpose is to define an

average cost of water, as plant lifetime has to be used the period of time that the plant is expected to

operate without the need for a major refurbishment.

In general it is common to choose a period between 15 and 25 years. In most cases 20 years are chosen,

as shown in Table 6 and the residual value or decommissioning costs are never taken into account. It is

not uncommon to use 30 years, especially for more recent plants. If the technology is expected to

operate without problems for such a period of time, it is good to take it into account as it will give on

average lower water costs, but it is important not to forget the maintenance and equipment

replacement requirements that will arise at certain periods of the 30 year lifetime. In particular for

thermal plants, Sommariva et al. have shown already since 2001 [125] that 30 years can be used and

that this can be extended to 40 or even 50 years if an optimised material selection takes place.

Table 6: Overview of plant lifetime used in desalination cost analysis literature

Plant Lifetime (years)

10 [83], [7], [53]

10 for mechanical and 40 for buildings/infrastructure [73]

Ranging from 5 to 15 [54]

15 [85] [59]

20 years for all equipment but 15 years for the boiler [70]

20 [75] [89], [62] [64], [66] [67], [72],[68], [69], [56],

[71], [126]

20 in most cases but more recent ones have 30 [48]

25 [80], [76], [63], [74],[84], [78]

25 years for the PV – not clear for desalination [49]

30 [61], [65], [58], [77]

Between 30 and 60 for power plants – not clear for

desalination [81]

Currency

18

The vast majority of papers reported the costs in USD, while there are few papers that used Euro

[55,70,74,87], or the local currency in the land where the case study refers to, for example Indian

Ruppees [62] or Egyptian pounds [77]. What is important when making a calculation is to pay attention

at the input data: In which currency they are provided and in which year they were reported originally. If

the input data are in a different currency than the desired one, a conversion is necessary and it has to be

done taking into account the weighted averaged exchange price published by the Central Bank for the

year from which the original data comes. If these data are older, they have to be updated to current

prices using the Chemical Engineering Plant Cost Index. For a good example of currency conversion and

update to current prices see the paper of Wittholz et al. from 2008 [48].

Subsidies

Subsidies can make a big difference in the viability of desalination projects. Still there is very little

attention to them in the papers that study the desalination costs. At a minimum, it has to be made clear

if any subsidies are taken into account for the calculations, or if any form of subsidies can be expected in

the future. The subsidies can be in the form of low cost or free land, low cost energy supply, loans with

low (or no) interest or a capital subsidy. The only paper that clearly took a potential subsidy into account

during the desalination cost assessment is Kaldellis et al. in 2004 [54], who included in the calculation

the 40% capital subsidy, which was available under certain conditions at the time for development of

desalination plants in Greece.

5. Discussion

When trying to define best-practices regarding the methodology, assumptions and data sources used for

the calculation of desalination costs, there is a need to consider the following key question: “What is the

purpose of the cost calculation?” Depending on how that question is answered, there are different

approaches that would be recommended in terms of the methodology that should be used, the

assumptions that are acceptable and the adequate procedure for identifying the most suitable

values/sources for the data needed to perform the calculation.

Some of the common reasons for which calculations of desalination are performed are listed below,

discussing briefly for each one the aspects of the calculation where attention should be focused.

1. Comparing configurations: For any desalination technology, there are different possible

configurations or possible additional equipment that can improve certain performance

characteristics of the system, as for example energy recovery devices for RO. An economic

analysis can be performed to assess the impact of any proposed design options on the final cost

of water (Some papers, just calculate the break-even cost of additional equipment/design

modifications of established plants. See for example [64]). In this category belongs the

assessment of innovative design modifications of desalination technologies (see Ref.

[58,66,69,72,78,127]) or the comparison between different possible energy sources for the

same desalination technology (see Ref.[63,70,82,84,128]).

2. Comparing desalination technologies: There are fundamentally different types of desalination

technologies and the preferences change over time, between the different regions of the world

and between the end-user categories. It is common to compare the cost of water between the

19

various desalination technologies [129], usually focusing in a specific part of the world and for a

certain project scale, i.e small, medium or large scale (see Ref. [60,65,76,83]). Under this

category comes also the evaluation of emerging technologies. Already at the very early stages of

technological development, the question of the cost comes up and there are studies that try to

determine the cost and compare it to the state-of-the-art (see Ref. [67,71]).

3. Comparing water supply options: When it comes to a specific site and deciding the technology,

the energy supply and the details of the plant design, comparing the costs of alternative options

is an important factor in the decision making process. This is similar to category “1. Comparing

configurations”. However, for decision making regarding actual plant construction the

calculation will be more detailed, especially when comparing desalination technology options

between them or trying to decide between desalination and alternative water supply options

(For benchmark prices of water supply see for example [86]). The cost estimation might not be

only for one site, but it could include the evaluation of different sites, for the water supply of

one specific area. (see Ref. [54,74,86]).

4. Comparing investment options: For someone providing the financing for a desalination project,

an assessment of its economic performance is necessary. This process might involve also the

comparison of different options for selecting the most viable. This is a process that will be

performed by an investor, the bank or the owner of the project and is a very site specific and

detailed calculation (see Ref. [59]). A similar calculation is performed for fixing the base cost for

public tenders, where public authorities request offers for producing and selling water at a cost

which must be below the tender base cost.

In general, the classification above starts with the type of analysis (comparing configurations) which has

the lowest requirements and moves through more complicated options towards the last one (comparing

investment options), which is the most demanding. For example, when the purpose of the desalination

cost calculation is to compare the economic performance of two different plant designs (i.e. RO with or

without energy recovery), it is acceptable to simplify the calculation, by leaving out items, such as the

cost of land, which might be the same or very similar between the two options. When the comparison

extends between different desalination technologies, it is still common to simplify by leaving out certain

elements; however it is important to ensure that these elements would have the same impact between

the two technologies compared. If the two technologies have a very different footprint, ignoring the

cost of land could lead to misleading conclusions. As we move to specific sites, details become more

important. Also the boundary conditions are of relevance when comparing different types of water

supply options. Finally, for investment evaluation, the calculation has to be as detailed as possible, with

the most critical element being the forecast of future costs and revenues.

Table 7 below provides a guideline for the elements that should be taken into account for each of the

four identified desalination cost assessments purposes.

20

Table 7: Guidelines for elements to be taken into account in the desalination cost calculation depending on the purpose of the analysis

Comparing configurations Comparing desalination

technologies

Comparing water supply

options

Comparing investment

options

Methodology SCOW (see Eq. 3 or 5) SCOW (see Eq. 3 or 5) LCOW (see Eq. 2) NPV or IRR (see Eq. 1)

Boundary

conditions

Almost anything can be

acceptable, restricted down to

the core desalination plant if

so wished

Should include at least all

peripheral systems (like pre-

and post-treatment), unless

they are expected to be

identical between the

compared options

Should be wide enough to allow

a fair comparison between

alternative water supply

options, especially in cases

where centralised and

decentralised options are

compared

Should be restricted to the

level that will be under the

direct responsibility of the

plant investor/owner

Hardware costs

Literature data can be used

(adapted to current prices1),

but a more accurate

estimation for the hardware

costs of the innovative part

must be provided

The hardware costs of the

technologies to be compared,

must be assessed with similar

assumptions2 (prices to refer

to the same year, region,

scale, currency etc)

Normally real costs expected

for the specific location and

plants should be used – first

screening of options can be

based on literature data

(adapted to current prices)

Real costs, quoted for the

specific project should be

used

Engineering / Civil

/ Project

Management

Can be ignored

Can be ignored, or can be

added as a fixed percentage of

the hardware costs (usually

between 20 and 30%)

Should be taken into account –

can be as a fixed percentage of

the hardware costs (usually

between 20 and 30%)

Detailed estimation of the

cost should be taken into

account

Permitting / Cost

of land Can be ignored

Can be ignored, unless the

technologies compared have

significantly different

Should be taken into account –

an assessment or inclusion to

the indirect costs could be

Real cost estimations should

be used

1 Chemical engineering plant cost index

2 When a technology at the very early stages of development is compared with a state-of-the-art one, it makes sense to use for the emerging technology

assumed costs for when the technology is at least on a pilot scale, if not market ready – however, if such an assumption is made it has to be very clear

21

footprint acceptable

Energy costs

Should be taken into account

– especially in case the design

modification affects energy

consumption

Should be taken into account with realistic assumptions about

future energy costs – a sensitivity analysis could be useful to

show impact of energy cost variations in the future

Data from the agreement

with the energy supplier

should be used where

relevant – otherwise

detailed forecast should be

procured and sensitivity

analysis performed to assess

risk

Chemicals /

Consumables

Can be ignored or included as

a fixed rate of operational

costs unless the design

modification affects

specifically one of these

elements.

Should be taken into account, based on literature data if detailed

assessment is not easy

Detailed assessment of the

expected costs in these

categories should be

included

Labour

Cab be ignored, unless the

technologies compared are

expected to have significantly

different labour requirements

Should be taken into

account, based on literature

data if detailed assessment

is not easy

Maintenance Should be taken into account, based on literature data if detailed

assessment is not easy

Brine disposal Can be ignored Should be taken into

account, if any

Should be taken into

account, if any

Externalities

Can be ignored unless the

technologies compared are

expected to have significantly

different results

Should be taken into

account

Externalities can be ignored

in the cost calculation, but

public acceptance must be

ensured

Tax / Legal /

Insurance Can be ignored Can be ignored

Can be ignored or added as a

small fixed percentage of the

operational costs

Should be taken into

account

22

Availability

A standard figure can be used (normally between 85% to 95%). A more careful assessment of the

availability should be carried out if there are specific situations like large seasonal variability in

demand, or intermittent power supply

The availability has to be

calculated based on

maintenance requirements

and other local conditions

Discount rate

A standard figure can be used

(usually around 0.08 –

depending on the country and

the general economic

situation in the year the

analysis is carried out)

A standard figure can be used

(around 0.08). If the technologies

compared are at very different

stages of development,

sensitivity analysis can be used to

show the impact higher discount

rates have on the new

technologies with higher

perceived risks

A standard figure can be

used (usually around 0.08 –

depending on the country

and the general economic

situation in the year the

analysis is carried out).

The discount rate has to be

calculated, based on the risk

and the financing structures

expected for the project –

alternatively the IRR metric

can be used

Plant lifetime A standard figure can be used

(usually 20 years)

A standard figure can be used

(usually 20 years), unless

differences are expected

between the technologies

compared

A standard figure can be

used (usually 20 years)

It has to be defined,

depending on the water sale

agreements, loan duration

and investor expectations.

The residual value (if any)

has to be taken into account

as well.

Subsidies Subsidies should be taken into account, if any

23

6. Conclusions

In the current work, all available scientific literature that has been published over the past 20 years

on assessing the costs associated with water desalination was analysed. The main conclusions are

summarized below:

In order to assess the cost of desalination, a suitable equation has to be used. In general most

papers use suitable equations.

A clear definition of the boundary conditions is necessary, defining the infrastructure that is

assumed as a given (like general infrastructure, distribution of the water to the end user etc.)

and what is included into the cost of the desalinated water (water intake, post-treatment and

storage)

Certain elements (like EPC, permitting, land costs, taxes, insurance etc) are very often ignored

when calculating the costs of desalination. This can be acceptable, depending on the purpose of

the calculation. However, it is always important to clearly acknowledge and explain the costs

that are ignored, so that the final result is assessed at the correct context.

The element that defines to the larger extent the accuracy and relevance of the cost assessment

is the quality of the data/estimated values used for the key variables:

• Regarding the hardware costs, when using assumptions based on other projects, it is

crucial to account for the year of construction, the scale of the plant, the location and

the appropriate currency conversion where relevant.

• Regarding the operating costs, it is important to try and foresee the variations expected

during the lifetime of the system. A sensitivity analysis can be very helpful to assess the

impact on the water cost in case where operating expenses develop in a different way

than expected.

• On the financial parameters, the discount rate has to reflect the risk associated with the

technology and with the wider economic and political situation at the project’s location.

Overall, it was concluded that the methodology, data and assumptions that are suitable on each

occasion depend on the purpose of the cost calculation. A table was developed to give guidance to this

respect. Irrespective of the calculation purpose though, when using a cost calculation for making

decisions and drawing general conclusions, it is important to take into account the assumptions that

were made during the calculation and understand the impact it would have on the result if the real

conditions were different from the assumed ones.

Acknowledgements

24

This work has been performed within the RED-Heat-to-Power project (Conversion of Low Grade Heat to

Power through closed loop Reverse Electro-Dialysis) - Horizon 2020 programme, Grant Agreement nr.

640667.

Nomenclature

C: costs per year

CE,t: Energy related cost for year t

Eel,t: the amount of electrical energy used by the plant in year t

Eth,t: the amount of thermal energy used by the plant in year t

i: discount rate

I0: initial capital investment

Mw: amount of water produced per year

Pel,t: the cost of the unit of electrical energy in year t

Pth,t the cost of the unit of thermal energy in year t

r: annual escalation rate for running costs

R: revenues per year

α: amortisation factor

Subscripts

t: value in year t

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